Banking

Industry assets up in second quarter, redemptions continue

AlistairBarr

SAN FRANCISCO (MarketWatch) -- Hedge fund industry assets jumped during the second quarter as many managers generated strong returns, but investor redemptions continued, albeit at a slower pace, Hedge Fund Research said on Tuesday.

Assets invested in the industry rose $100 billion to $1.43 trillion in the second quarter of 2009. That's the first quarterly increase in assets in a year, HFR reported.

Industry assets peaked at $1.93 trillion at the end of the second quarter of 2008. The global financial crisis in the second half of last year triggered a wave of investor redemptions and left the average hedge fund down almost 20% that year, according to HFR.

Performance has recovered this year, leaving HFR's main hedge fund index up more than 9% in the second quarter, the industry's best quarterly gain since the fourth quarter of 1999.

Investors continued to withdraw capital from the industry. They redeemed $42.8 billion from hedge funds in the second quarter, HFR said. However, that was roughly 60% less than the $103 billion pulled in the first quarter of 2009 and the $152 billion withdrawn in the fourth quarter of 2008.

Funds of hedge funds, which allocate money to a range of underlying managers, continued to experience a higher percentage of capital redemptions than single-manager strategies, HFR noted.

Investors withdrew $33 billion from funds of hedge funds in the second quarter. Total capital invested in hedge funds via funds of funds currently stands at $530 billion, 37% percent of the industry's total. That's well below the $825 billion that was invested through funds of funds at their peak level in mid-2008, HFR said.

The number of hedge funds remained at roughly 8,900 during the second quarter, suggesting it's difficult to launch new funds, HFR added.

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